GERMANY Law and Practice Contributed by: Tanja Schienke-Ohletz, Flick Gocke Schaumburg
Family Foundations Family foundations and private charitable foundations ensure that the company’s assets remain tied up in the long term and allow for flexible succession planning. Companies Corporations (GmbH, AG) and partnerships (espe- cially GmbH & Co KG) are traditional instruments of succession planning. GmbH & Co KG offers a high degree of flexibility and allows family members to be involved. The structure of the company (eg, transfer restrictions, special rights) can control influence and succession. Differences Between Residents and Non- Residents These are as follows. • Tax law: Personal tax liability is based on the place of residence or habitual abode, while non-residents (foreigners, foreign companies/foundations) are only subject to limited tax liability on domestic assets. • Foundations with foreign connections: For for- eign family foundations without a registered office or management in Germany, additional taxation applies under certain conditions, meaning that foreign family foundations and trusts are often not advantageous for residents of Germany from a tax perspective. • Structuring with foreign foundations: In the case of foreign foundations (eg, Liechtenstein), the com- position of the governing body must often include non-family members for tax reasons. The role of the foundation can be limited by special rights and provisions in the articles of association. 9.2 Recent Developments Affecting Planning Vehicles Residents of Germany are subject to additional taxa- tion if they benefit from a foreign family foundation or trust. In recent years, this has been repeatedly upheld by the European Court of Justice, albeit in favour of the taxpayer. Exceptions to additional taxation have so far only been provided for EU/European Economic Area (EEA) foundations in the law, but the Federal Finance Court has now ruled that they should also apply to third-country foundations, such as Swiss
foundations. This also opens up further applicability for trusts and facilitates the tax treatment of benefi- ciaries in Germany. German family foundations are subject to inheritance tax every 30 years, which does not apply to foreign family foundations and trusts. 10. Fiduciary Regulation, Standards and Taxation 10.1 Corporate and Professional Fiduciaries Germany does not have its own trust law, as trusts do not exist as a separate legal form. Therefore, there is no special licensing system for trustees. However, if a trustee makes asset management or investment decisions within the framework of a trust, this may be considered a regulated financial service and require authorisation from the Federal Financial Supervisory Authority in accordance with the Banking Act. Liability is governed by the general rules of German civil law. Professional trustees are regularly subject to a higher standard of care, which is based on the standards of their profession. Private trust companies cannot be established under German law, as there is no domestic trust regime. Instead, family foundations are often used as long- term asset structures, such as the family foundation. 10.2 Taxation of Trusts Whether trusts are subject to corporation tax depends on their classification under German tax law. Accord- ing to the Corporation Tax Act, only certain corpo- rations, associations of persons and asset pools are subject to corporation tax. Trusts are not legal entities under German law and are therefore not automatically treated as subject to corporation tax. However, depending on its structure, a foreign trust may be classified as an asset pool subject to cor- poration tax, or as another type of corporation if its structure and function are comparable to those of a foundation or special-purpose fund and it has its own legal personality within the meaning of German tax law. This applies even though a trust does not exist
62 CHAMBERS.COM
Powered by FlippingBook